Warsh says he made no rate-cut promises to Trump

The market should treat this less as a single-person confirmation exercise and more as a signal that the Fed reaction function may become more politically contestable. Even if policy rates do not move immediately, the first-order effect is a higher probability of a steeper, more conditional easing cycle once growth or labor data softens, because the new chair would be incented to defend institutional independence while proving flexibility. That combination usually steepens the front end first, then bleeds into term premium if markets start pricing a less predictable regime.

The more important second-order impact is on rate volatility, not level. A central bank perceived as reform-minded but politically scrutinized tends to reduce confidence in forward guidance, which is typically bearish for duration-heavy assets that depend on stable discount-rate assumptions. That creates a better setup for curve steepeners and relative-value trades than outright duration longs: the left tail is a faster-cut scenario, but the right tail is a governance shock that pushes term premium higher.

Consensus may be underestimating how quickly this can matter for risk assets even without any policy move. Financials can initially benefit if the market prices a less aggressive cutting path, but that fades if the result is a more volatile curve and weaker confidence in the central bank's reaction function. The cleaner expression is to own assets that benefit from higher real-rate uncertainty while fading sectors where valuation is most sensitive to long-duration discount rates.